ODAC Newsletter - Apr 15

Welcome to the ODAC Newsletter, a weekly roundup from the Oil Depletion Analysis Centre, the UK registered charity dedicated to raising awareness of peak oil.

The IEA reported this week that there are preliminary signs of oil demand destruction due to soaring prices. Goldman Sachs underlined this viewpoint on Tuesday by advising its clients to sell oil, copper, platinum and cotton. Prices fell in response, although concern over conflict in the Middle East and Saudi production saw prices nudging up again by the end of the week.

Even with demand destruction there are significant concerns that oil supply will remain tight. Platts reported that OPEC is struggling to cover the shortfall in Libyan production especially for the high quality grades. The IEA estimates that another 3 million barrels/day of production could possibly be affected by political unrest in the Middle East; while Japan is set to require additional oil imports in coming months to help cover the shortfall in power generation caused by the Fukishima nuclear disaster.

In Fukishima this week efforts continued to stabilise the damaged reactors where according to U.S. Nuclear Regulatory Commission Chairman Gregory Jaczko, "Significant additional problems" could still occur. The severity of the accident was raised on Tuesday from level 5 to 7, the highest possible rating, and the same as the Chernobyl disaster. Officials were quick to make assurances that the change in rating was not due to a recent worsening of the situation, but rather reflects the radiation released to date - which is much less than Chernobyl.

With concern growing over future oil supply and nuclear safety, much attention is currently focused on prospects for increasing gas production, via shale gas. The safety of the fracking process used to produce the gas is already the subject of considerable debate, but the industry took another hit this week as a new report from Cornell University claimed that the full life cycle of shale gas production produces more greenhouse gas emissions than coal. The industry has been positioning gas as a low carbon bridge fuel, and the report will no doubt result in heated debate. The uncertainties around gas, and also biofuel - see a report released by the Nuffield Council on Bioethics this week - demonstrate clearly that there is no ready substitute fuel for oil, and that therefore responses will need to address energy demand as well as supply.

Oil

The oil market looks set to tighten further this year, with oil inventories shrinking as supply disruptions and political tensions in the Middle East and North Africa look set to persist for months, the International Energy Agency said Tuesday.

However, although today's supply picture could imply rising prices, there are preliminary signs that the current high cost of oil may already be reducing demand growth, the IEA said. "The surest remedy for high prices my ultimately prove to be high prices themselves," it said...

Despite some Gulf OPEC members increasing crude oil production last month, the output is struggling to cover the dramatic slump in Libyan production as a result of ongoing violence in the North African country, according to a new report,

The 12-member Organisation of the Petroleum Exporting Countries' (OPEC) production of crude oil declined around two percent in March to an average of 29.17 million barrels per day (b/d), according to new survey data from energy analysts at Platts in London...

The oil price tumbled by as much as $3.25 a barrel on Tuesday after the world's biggest commodity trader called the top of the market for crude and a range of other commodities — at least for the time being.

Goldman Sachs advised its clients to sell their investments in oil, copper, platinum and cotton, arguing that record levels of speculative trading in crude have pushed their prices up so much in recent months that "in the near term, risk-reward no longer favours" holding those commodities...

"In 2009 we reached peak production of petroleum. The production can now only decline, while even though the growth of the global economy has rebounded to 4.5%," said French Prime Minister Francois Fillon on April 5 before the National Assembly. He was responding to a question on the current energy prices asked by the Socialist deputy Francois Brottes.

...Never in France has a member of the executive branch had made such a statement...

Oil gained for a third day in New York, after a Saudi Arabia-based economist said the holder of the world's biggest crude reserves cut production this month, signaling supply may shrink.

Futures climbed as much as 0.6 percent today, paring the week's decline to 3.7 percent, after John Sfakianakis, chief economist at Riyadh-based Banque Saudi Fransi, said the kingdom reduced output by 300,000 barrels a day. Barclays Plc said the country may be lowering production of its lighter oil blends introduced in response to the slump from Libya. Prices also advanced yesterday after the U.S. dollar fell, increasing the appeal of raw materials...

Iraq has raised its oil output to the highest level for almost a decade, adding another 350,000 barrels per day in the space of six months to reach 2.68m b/d, according to the International Energy Agency.

For years, one of the main concerns surrounding world oil supply has been the state of Iraq's hydrocarbon industry, damaged by decades of war and under-investment. But just as the loss of Libyan output has helped to push the price of a barrel of Brent crude above $125, Iraq has quietly boosted its own production by 15 per cent since last August...

As war-ravaged Iraq ramps up crude oil production to reach an ambitious goal of a nearly five-fold increase by 2017, it is scrambling to face the parallel challenge of protecting oil facilities.

The Oil Police, with the wide responsibility of guarding every aspect from fields and personnel to refineries and petrol stations, is struggling with shortages of equipment and funds, as well as the manpower specified in the goverment's five-year plan...

Gas

Natural gas, with its reputation as a linchpin in the effort to wean the nation off dirtier fossil fuels and reduce global warming, may not be as clean over all as its proponents say.

Even as natural gas production in the United States increases and Washington gives it a warm embrace as a crucial component of America's energy future, two coming studies try to poke holes in the clean-and-green reputation of natural gas. They suggest that the rush to develop the nation's vast, unconventional sources of natural gas is logistically impractical and likely to do more to heat up the planet than mining and burning coal...

Natural gas is riding high. Long an overlooked energy source, gas is suddenly front and center in the energy picture—in a presidential address, in the business world, on the cover of Time magazine. That's mostly due to shale gas—new deposits of natural gas found throughout much of the country, and tapped via hydraulic fracturing. By some estimate the U.S. may have up to a century's worth of gas reserves based on current consumption, and it's not just here—as the Energy Information Administration recently announced, there are vast amounts of shale gas deposits found around the world, enough to increase global reserves by as much as 40%. A Washington consensus—one that included both parties, industry and many environmentalists—emerged around natural gas as a safer, cheaper and greener bridge fuel, something domestic to bring us part of the way to a clean energy system. In a world where the future of nuclear is hazy post-Fukushima, and the coal is increasingly opposed for its pollution, natural gas seemed like a safe bet...

Several Democratic senators said Tuesday that the Environmental Protection Agency should step up regulation of the natural gasindustry because they are concerned that toxic chemicals used in drilling could enter the public water supply.

In a Senate hearing, Democrats pressed the agency about the consequences of a fast-growing drilling technique called hydraulic fracturing, or hydrofracking, that involves pumping chemicals and water deep underground to release gas deposits...

On the eve of a visit to Kiev by Vladimir Putin, Russian prime minister, Ukrainian prosecutors on Monday launched a criminal case against ex-prime minister Yulia Tymoshenko, accusing her of illegally brokering a natural gas supply contract with him in January 2009.

"A criminal case has been launched against" Ms Tymoshenko, now an opposition leader, "over abuse of power linked to the signing of gas contracts in 2009," said Renat Kuzmin, Ukraine's deputy prosecutor-general...

Electricity

It stretches 260km under the North Sea, contains 23,000 tonnes of copper and lead, and may represent the first step towards a renewable energy revolution based on a European electricity "supergrid". The £500m BritNed cable, which has just entered operation, is the first direct current electricity link from the UK to another country in 25 years.

The high voltage cable, a joint venture between the UK National Grid and the Dutch grid operator TenneT, has a capacity of 1,000MW, the equivalent of a nuclear power station. It runs from the Isle of Grain in Kent to Maasvlakte, near Rotterdam, in the Netherlands...

The U.K.'s largest energy supplier Centrica is this year to start monitoring the behavior of 14,000 electricity customers in a smart grid trial project that will also test the impact on the grid of adding low-carbon energy technologies such as electric cars and solar panels.

The three-year project, which Centrica is conducting in partnership with distribution network company CE Electric and Durham University, aims to help homes and businesses cut their energy use and speed up the integration into the grid of technologies such as ground source heat pumps and combined heat and power boilers. These will supply power back into the system and also test the network...

Nuclear

China could decide to stop approving "second-generation" nuclear reactors as it reassesses its long-term plans for the sector, an official with one of the country's biggest nuclear firms said on Wednesday.

"It is probable that China will stop approving new second-generation units, and it will be difficult to build (reactors) on a large scale until third-generation technology is fully mature," said Li Xiaoxue, general manager of new project development at the state-owned China Guangdong Nuclear Power Corp...

Japanese officials struggled through the day on Tuesday to explain why it had taken them a month to disclose large-scale releases of radioactive material in mid-March at a crippled nuclear power plant, as the government and an electric utility disagreed on the extent of continuing problems there.

The government announced Tuesday morning that it had raised its rating of the severity of the accident at the Fukushima Daiichi Nuclear Power Station to 7, the worst on an international scale, from 5. Officials said that the reactor had released one-tenth as much radioactive material as the Chernobyl accident in 1986, but still qualified as a 7 according to a complex formula devised by the International Atomic Energy Agency...

Tokyo Electric Power is Lehman Brothers times 10. It really is too big to fail. The company supplies 29 per cent of Japan's electricity to more than 2m businesses and 26m households in the Tokyo metropolitan area. Not only is Fukushima Daiichi now out of permanent action, 13 of the company's 17 nuclear reactors are offline, as are half of its 20 oil-fired thermal plants and both of its coal-fired thermal plants...

THE World Bank has called for the relaxation of laws requiring crops to be blended into petrol, saying that they are contributing to the global food price crisis.

Robert Zoellick, the President of the Bank, said that a "toxic brew" of higher food and fuel costs was heightening popular unrest in regions such as the Middle East and North Africa and condemning millions more people to poverty...

UK

The head of the UK financial regulator has launched an attack on proposals by Washington and Brussels to introduce position limits on commodities, which restrict the number of contracts that speculators can hold, as a tool to cap oil price volatility.

In an academic paper, Lord Turner, chairman of the Financial Services Authority, and co-authors Jon Farrimond and Jonathan Hill, said that the rise in oil prices from 2003 until 2010 was "largely explicable in fundamental terms"...

Soaring petrol prices are hitting sales at out-of-town shopping centres as cash-strapped consumers think twice about making long journeys to retail destinations such as Cribbs Causeway in Bristol and the Metrocentre in Gateshead.

As the price of oil breached $124 a barrel for the first time in two and a half years — and is now at a record in sterling terms, as a result of the weaker pound — John Lewis revealed big sales declines at its shops in key out-of-town malls, including Bluewater in Kent and Cribbs Causeway...

Transport

President Barack Obama's plan for a national high-speed rail network suffered a serious setback as a result of the fight over budget cuts. No money will be allocated for high-speed rail projects for the remainder of 2011.

Supporters have pointed to the plan as a job creator and economy booster, while critics have expressed doubts about whether spending billions of dollars on high-speed rail is the best use of federal funds...

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